How same-sex marriage impacts financial aid

01/28/2014

MarketWatch, January 28, 2014. Now that their marriages are recognized by the federal government, same-sex couples with college-age children may lose out on some financial aid.

As they scramble to meet looming deadlines for financial-aid applications, families in which both parents are unmarried and live together—or in which the parents are in a same-sex marriage—may qualify for less assistance than in previous years.

The 2014 Free Application for Federal Student Aid or Fafsa—which calculates income, assets and family size—now collects financial information about parents “regardless of marital status or gender.” Since the Supreme Court ruled that Section 3 of the Defense of Marriage Act was unconstitutional, same-sex couples must report their marital status if they were married in a state where same-sex unions are legal but reside in a state where they are not, or even if they were married in a foreign country. If the student is one half of a same-sex marriage, he or she may also be considered to have independent financial means. “It’s a recognition of diverse family structures,” says Greg McBride, chief financial analyst with Bankrate.com.

There are other new twists in this year’s application: If a student’s parents are unmarried but are living together, they’re now treated as though they were married. “This includes both divorced and never-married parents,” says Mark Kantrowitz, publisher of Edvisors.com , a network of websites about planning and paying for college. “And living apart means maintaining separate residences. Different floors of the same house don’t count.” Fafsa also requires applicants to answer questions about the parent they lived with most during the past 12 months and include a stepparent’s income. In all cases, both partners’ income and assets must be reported on the Fafsa, and all children are counted in household size.

Even before the U.S. Supreme Court decision on DOMA last year, the Department of Education was planning changes to Fafsa to include same-sex parents and unmarried parents, Kantrowitz says. To respect the privacy of the student, he or she doesn't have to give the gender of parents on the application itself, but merely state if they are married or cohabiting. “The Department of Education realized that the Higher Education Act of 1965 was focused more on the relationship of the student with his or her parents instead of the parents’ relationship with each other,” he says. (Of course, if the parents of the student seeking aid are unmarried and living separately, only one parent is responsible for completing the Fafsa.)

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The new rules could have implications for couples that are unmarried and not cohabiting yet, however. “Delaying or accelerating marriage may increase or decrease aid eligibility, depending on the specific circumstances of the student and his or her family,” Kantrowitz says. “Changing the dependency status can have a dramatic impact on aid eligibility.” He advises using a financial aid calculator—like the Department of Education’s Fafsa4caster —to estimate the expected family contribution with and without the marriage to see which will lead to more aid; each $10,000 increase in income will decrease financial aid by roughly $3,000 for one child in college, he says.

Of course, the amount of student aid for the 2013 to 2014 academic year could be significantly reduced if one of the child’s legal parents received a major bonus at work last year, won money in the lottery or inherited money from a relative. In such cases, students and parents are legally obliged to report these one-off windfalls. The good news: For the 2012 to 2013 academic year, 82% of college-bound students and their parents said they completed the Fafsa, according to student-loan company Sallie Mae; of those who didn’t, 12% said they weren’t aware of Fafsa and 8% said they missed the deadline. Deadlines for the next Fafsa are approaching and vary from state-to-state .